Surges Then Faces Sudden Dip As Options Expiry Looms

According to Crypto trader Mags, Bitcoin, the flagship cryptocurrency, has recently demonstrated a notable +55% surge, breaking out from a smaller broadening wedge pattern.

Mags shared insights on this significant price movement, observing Bitcoin’s breakout and suggesting a mid-term target at the “upper trendline resistance of a larger broadening wedge.”

This surge notably results from several catalysts in play, such as the surging interest of institutional investors and the US approval of spot Bitcoin Exchange-Traded Funds (ETFs).

Upcoming Options Expiry Impact’s Bitcoin Price

However, Bitcoin has seen a slight downturn following its recent surge over the past 24 hours. Despite being significantly up over the past month, the asset has declined by nearly 10% in the past day, with its current trading volume slightly decreasing to $44 billion from over $50 billion yesterday.

This sudden dip can largely be attributed to the imminent expiration of options. According to the options trading platform Greeks.live, a substantial 36,000 BTC options are set to expire soon, featuring a Put Call Ratio of 0.9.

Notably, the ‘Put Call Ratio’ serves as a sentiment indicator, assessing the market mood by comparing the volume of put options to call options. It is calculated by dividing the number of traded put options by the number of traded call options.

Put options grant the holder the right (but not the obligation) to sell a specified amount of an underlying asset at a predetermined price within a specific timeframe. Conversely, call options allow the holder the right (but not the obligation) to buy a specified amount of an underlying asset at a set price within a specific timeframe.

The Put Call Ratio is interpreted in two ways: a high ratio (greater than 1) and a low ratio (less than 1). A low ratio suggests more call options are being bought than put options, indicating bullish market sentiment as more traders expect the market to rise.

Conversely, a high ratio indicates that more put options are being bought than call options, suggesting bearish market sentiment as more traders anticipate a market decline.

Jan12 Options Data
36,000 BTC options are about to expire with a Put Call Ratio of 0.9, a Maxpain point of $45,000 and a notional value of $1.68 billion.
262,000 ETH options are due to expire with a Put Call Ratio of 0.64, a Maxpain point of $2,400 and a notional value of $680… pic.twitter.com/LSKNGKVjrH

— Greeks.live (@GreeksLive) January 12, 2024

With Bitcoin’s Put Call Ratio currently at 0.9, as reported by Greeks.live, it implies that traders are leaning towards a bearish move for Bitcoin. This anticipated decline may contribute to Bitcoin’s current dip, despite the recent commencement of spot Bitcoin ETF trading in the US.

Bitcoin’s Bullish Potential

Despite the current dip, market analysts suggest this downturn might be short-lived. As highlighted by crypto trader Mags, the breakout from a smaller broadening wedge pattern signifies a bullish sentiment in the short term.

The +55% surge marks a recovery from previous lows and prepares the stage for a potential ascent toward the upper trendline of a larger broadening wedge. Such a pattern hints that Bitcoin could be primed for further substantial price movements shortly.

Additionally, the ‘Max Pain’ point, as identified by Greeks.live, is currently pegged at $45,000 for Bitcoin, holding a total notional value of $1.68 billion. This point, where option holders face the most financial loss, is a critical indicator of the market’s potential direction.

According to Greeks.live’s analysis, the nearing expiry of 36,000 BTC options implies that the market is poised for significant movements. In anticipation of these dynamics, Greeks.live reported a shift in trading strategies has been observed, with a growing emphasis on ‘LONG GAMMA’ approaches.

Featured image from Unsplash, Chart from TradingView

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